Internationalization

The company started their services globally since the first of January 2016 after a successful pilot test in the local area. The pilot result showed that there was a big number of users from outside of Finland and they were out of the competition due to the company’s terms and conditions. A significant number of subscriptions came from Finland, Russia, Bangladesh, China, Germany, and Iran. The company conducted few surveys inside Finland within 18-52 age group of participants from different nationalities to investigate the possibility of Glostars’ user engagement from Finland and the rest of the world. It also included the company’s possible marketing strategy and how they can enter a new market and so on. All the results of the surveys suggested that the company should focus more on global market rather than the home country. The surveys found that the social media and photography business needs bigger audience which is not possible to realize from Finland alone as the total population of Finland is 5.4 million, constituting only 11.6% of 15-24 years old group which is the main target group for social media, with a population growth rate of only 0.38%

60

80 20

Business success without External Funding Possibility of Informal Funding Possibility of Formal Fundin

0 10 20 30 40 50 60 70 80 90

Business success with and without external

funding

(Index Mundi, 2016). On the other hand, the total number of social media users in Finland is only 2.8 million, which is expected to reach 3 million by the year 2017. The growth of the users annually is approximately 30K-70K, which means by 2020 the total number will be 3.2 million (Statista, 2016).

The company targeted some countries to enter first as their strategic decision. The key factors for choosing a country were:

➢ A country that is geographically and economically important

➢ Have a large number of population

➢ Less language barrier

➢ Big number of internet users

➢ Politically influential among neighbouring countries

➢ Inadequate photo related social media

➢ Full of natural and historical places which may bring enough creative content

➢ Less expensive for marketing and regulatory issue

The start-up chose Russian Federation as their first target country to enter because Russia offers a tremendous opportunity for Finnish SMEs due to its market size and geographical proximity. At first glance, the Russian market seems to be difficult, but potentially rewarding, offering many opportunities for Finnish businesses also when it comes to e-commerce. Therefore, companies striving to enter the Russian market must be prepared to put more effort, money, and personal resources in it since it is a challenging international market to penetrate. About 57% of the population of Russia is between 15- 54 age group (Index Mundi, 2015). Around 61% of the population use the internet according to the data of the year 2013 and it was expected to rise to 75% by the end of the year 2015 (Internet live stats, 2015). As for behavioural targeting, company’s target audience can be called

“hipsters”²⁰. There are people from 15 to 30 years old from middle-class who like photography, alternative music, and contemporary art. They are everyday users of the social network (My World, LifeJournal, Vkontakte, Facebook, Tumblr, Twitter, Instagram, etc).

Moreover, hipsters always want to be in the trend (Sukhova-Dulskay, 2014) and are willing to express themselves.

20 Hipsters: people who follow the latest trends of fashion (Oxford dictionary, 2016)

There is no strict fundamental governmental legislation on the use of the Internet, whether it is only Russia or the rest of the world; only local acts containing one or two aspects matter.

For instance, in Russia, no special license is required to create a website, and there do not exist many legislative acts which can influence the work of the internet-based start-ups.

The company finds Russian market huge and it has been serving as a trendsetter for the Ex-USSR countries. If they can penetrate Russian market successfully, it will give the company opportunity for access to other Russian-speaking countries such as Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, Georgia, Moldova and Ukraine. As these countries have similarities in cultural, racial, religious, and ethical aspects, it will be beneficial for the case company to expand their market among these countries as well.

Currently, the company has users from 31 countries of four continents. The bigger number of users are from Finland, Russia, India, China, Iran, Bangladesh, Germany, Brazil, Australia, and the USA. As a strategic internationalization of the company, they have the same plan to enter India and Bangladesh. These two countries have a huge population, and geographically these countries are important too. Especially, India has influence on its neighboring countries, and there is a growing number of social media users available. In the behavioural aspect, the users from South-East Asia are not afraid of using a new service.

Only in India, there are more than 1 billion mobile phone subscribers (Rai, 2016) and most of them have a smartphone. On the other hand, the start-up is also focusing on Nordic countries and Germany to spread their service from 2018. These countries are the sources of good quality content as well as these countries will bring advert revenue to the company as mentioned Doloudin-The Manager, Business Development and Corporate Affairs. The company believes this strategic move will increase the user base rapidly as well as it will enhance the variety of contents. There is also a possibility of attracting external funds from these countries as a result of a broader user base and the availability of rich contents.

According to the interview on internationalization of the company, it was visible that the venture is very optimistic about their global operation. They believe and already have some result from the internationalization that their idea is already accepted by users from many countries. The researcher found that the company has the possibility of user engagement at around 60%-63%, whereas external financing opportunity is 16% (see Figure 13). The

venture also believes they have the possibility of earning from the overseas market at around 20% -21% through their existing services.

Figure 13: Internationalization impact 5.3.2 Competition analysis

The social media and image buy and sell industry are little bit different from industries with traditional product and services. In this industry, a company requires a better understanding of their competitors. For a novice company, it is important to do competitor analysis before getting into the market. Competitor’s analysis is involved in “Identifying your competitors and evaluating their strategies to determine their strengths and weaknesses relative to those of your own product or service” (Entrepreneur, 2017).

The industry in which the case company operates has various types of competitors. Their direct competitors may include Vsco, Tumblr, Inc, 500Px, Getty Image. The indirect competitors may include different social media and photo sharing platforms. The primary direct competitors are profiled below.

Vsco is an art and technology company empowering people everywhere to create, discover, and connect (VSCO, 2016). VSCO offers several products- all related to photography and photo correction. The company also provides VCSO Film and VSCO Keys products that are used for editing pictures in Adobe Lightroom and provide the digital film emulation effects (Knudsen, 2014). In spring 2015, the application had 20 million app users, and the application was among 20 most downloaded apps in the world since 2013 (Zhang, 2015).

Moreover, #vsco is the number one branded hashtag on Instagram (Barkho, 2016). However,

the company is not positioned as a social network: "We’re not interested in creating another social network," says VSCO co-founder Joel Flory. "We wanted to create a platform that honoured the art [our users] created without likes and comments" (Hamburger, 2013).

Tumblr is a unique hybrid of the social network, online microblog and photo sharing tool.

It is free, and users just need to register to be able to create, to publish different types of the content, i.e. text, photo, quote, e-link (Tumblr, 2016). Tumblr was founded in 2007, and now it has about 140.7 billion of posts, 318 million of blogs (Tumblr, 2016). In addition, there are about 500 million users of Tumblr per month (Creative Review, 2016). Tumblr is known as “goldmine” for raising the brand awareness. It is used as a platform for advertising and business for different famous companies like Apple, Lexus, MTV and so on, and photos of the celebrities (Costille, 2015). The main source of the Tumblr marketing is the social network.

500px is a privately-held online marketplace for photo sharing. According to their website, 500px is a “photo community and marketplace for discovering, sharing, buying, and selling inspiring photography powered by creative people around the world” (500px, 2016). 500px was founded in 2009, and since then its global photography community has steadily grown to 8 million users. The company positions themselves as a platform for professional photographers and serious hobbyists, rather than a community portal for the masses. Most of their product development and marketing activities are aimed at reaching that ‘pro’

audience (Microstock Diaries, 2015). In addition to hosting photographers’ portfolios, it also allows them to license photos to customers for commercial use and profit from their work.

500px has a rating system that is time sensitive (Waltman, 2013).

Getty Images, Inc. is an American stock photo agency founded in 1995. It is the world’s largest photo and video agency with a database of 80 million images. It licenses its image to a vast customer segment ranging from businesses small and large, advertisers, bloggers and websites, newspapers, and magazines. According to its report, the annual revenue of the company is approaching $1 billion.

Getty was among the early ones that recognized the impact of digital revolutions on photography. Accordingly, the company acquired PhotoDisc in 1998; this is the first company that figured out how to sell photos in a digital format. In 2005, iStockphoto

emerged as a top source of crowdsourced (also known as the amateur) images. Average price for each photo at iStock was $2 to $3. Considering the growth potential of iStockphoto, Getty bought it in 2006. With this move, Getty’s business model changed quite significantly.

With the acquisition of iStockphoto it started providing cheaper images for wider use to a big group of customers. Before the acquisition of iStockphoto, it had some 150,000 customers a year, which is now 1.3 million. Today the company licenses or sells around 39 to 40 million images a year. Getty has different licensing arrangements along with a subscription service (Berfield, 2012).

Chapter 6. Discussion, Implications and Conclusion

This study conducted on Glostars Oy, a social media based photo sharing platform, offers several important implications to those seeking information on funding sources and actual funding as well as in what situations a social media based start-up should think to go for internationalization. This research has also investigated the eligibility criteria needed to fulfil in receiving start-up funds in Finland. The following table 4 summarizes the key findings of this study along with their relevance to the case company and overall implications.

Type Relevance to Glostars Overall implications 1 Information search make them aware of the sources.

2 University based

3 Team composition Although the case start-up has a founding team

If a start-up lacks in this, they can hire some experienced and is the best alternative when there is no external funding available.

absence of external

Table 4: Summary of findings and implications

First, this research observed that the company searched information related to start-up funding online and did their primary desk research, contacted some agencies for proper information. The company found that information on potential sources of funding is not readily available. Although now-a-days there are so many resources available online, they found, these are not much helpful. The case company also attended several seminars, business meetings and organizational mentoring events, which increases their network in the industry and provides the better understanding of the business opportunity. Similar findings were reported by Ozgen and Baron (2007) in their study that, entrepreneurs recognize opportunities through mentors, informal industry networks and participation in professional forums.

Gathering information and using them in decision making is the key for any business to increase the level of experience to figure out the right information for the right purpose.

However, it seems that the case company did not spend sufficient time for the wider level of information gathering. We can see from the literature that there are many new accelerators, investment related supporting programs and events arranged by FiBAN, FVCA and other organizations but the case company’s approach to these organizational events was limited.

This limited approach is against the findings of Kaish and Gilad (1991) as their study found that experienced entrepreneurs focus less on external sources; for example, they spend less time in reading, thinking and talking than their less experienced counterparts. This may be attributed to the fact that these activities run by the organizations as mentioned earlier are very new to the Finnish society and most of the start-ups are not aware of them. Again, information search helps a novice entrepreneur to recognize the available opportunity and increase his or her experience. It is a part of the business process for entrepreneurs (Stevenson and Sahlman, 1989). In this circumstance, the case company should have spent more time to dig the opportunity available in the economy which was not seen by others (Kirzner, 1993, 1973). It can be noted for Finnish start-ups that there are new funding opportunities available in the market and those are very new to most of the start-ups. So, it is important to search for them continuously. Policymakers also can offer more customized seminars and workshops targeted to start-ups to make them aware of these funding opportunities.

Second, the researcher found that the founders of the case company started their business during their study period at the university. There are many successful companies that started their business at the university and now leading the industry worldwide, for example, Facebook, Google and so on. The case company became the champion of LUTES Summer Launchpad 2015 and received free office space, storage and webhosting support from Microsoft and marketing support from LUT and Saimaa UAS. These supports were a part of student run university-based entrepreneurial communities. This type of concept in the economy started a new horizon. These community-based entrepreneurial approaches created many new businesses, inspiring students to be self-dependent and become entrepreneurs.

The government can concentrate more on these types of activities to reduce the unemployment and increase the number of entrepreneurs. Founders of start-ups, originated in universities, especially in the study period, can ultimately be benefited from the university-based and -linked communities. So, these types of start-ups should try to utilize these readily available network sources to attract external funding. The policymakers also can design some joint collaborative programs (such as business incubator) to assist these start-ups as well.

Third, team composition is a key factor for external funding. According to Unshackled Ventures (2017), a start-up can receive 20%-80% conviction mark from the investors for the team’s credentials in the valuation of the start-up. We can see that the founding team of the company has an excellent cross-national composition for which they may get some credit.

However, this study noticed, the team lacks in the prior experience and skills which may prove as a challenge to getting future funding. Start-ups should have a team comprising of diversified national backgrounds as well as skills to attract external funding (Beckman, Burton, and O’Reilly, 2007). If a start-up lacks in this, they can hire some experienced and well-connected personnel who may add value to the team and mobilize funds from external sources.

Fourth, while the company was continuously unable to attract external funding, they started an innovative approach to collect fund and to run the company, especially the day-to-day activities of the company. The company offered ‘shares’ to its employees instead of monthly salary and sold some other shares to their friends. These types of activities increase the motivations among the employees, as they become the owners of the enterprise. On the other hand, by selling the shares, the company also tried to diversify some risk as well. This type

of innovative internal funding approach, which is known as ‘bootstrapping’ in entrepreneurship (Winborg and Landström, 2001), is not uncommon among the start-ups.

Harrison, Mason, Girling (2004) from a survey of software industry found that small firms are more likely to use and value cost-reducing bootstrapping techniques, whereas larger firms make more use of the exploitation of value-chain based relationships. We also observed in this study that case venture has used bootstrapping to minimize the operating costs of the company.

Fifth, this study also emphasizes the role of knowledge on country level regulations concerning external funding. We observed that case company approached crowdfunding without adequate preparation. While Finland does not allow such crowdfunding approach, especially the donation based funding, which was a default service on the Indiegogo crowdfunding platform, the founders thought that backers might not donate rather would be interested in buying the products. However, the outcome was opposite. The venture learned all these after going through a lot of burdens, and they undertook to return the donated amount to the backers. This study also found that the Finnish crowdfunding law does not allow rewards or donations based crowdfunding models. The rewards or donations based crowdfunding falls under consumer protection act, which is legal in Finland only with a special fundraising permit for a particular project. The law covers mostly the legislation applied to investment crowdfunding in Finland (Invesdor, 2016). Thus, the case company was not able to receive the campaign money from Indiegogo and had to stop the campaign.

Therefore, the start-up must have searched all available information, rules and regulations, which might affect their fund-raising initiatives. Since these regulations vary from country to country and most countries yet to come up with concrete and clear legislations, particularly with respect to emerging alternative platforms such as crowdfunding, founders need to be very cautious while thinking to use such types of sources. So, in future, if any start-up company thinks about donation based crowdfunding in Finland, first they should check whether there are any changes in Finnish crowdfunding laws and then start the campaign.

Sixth, Internationalization brings some opportunity for the case company. Their strategic international move brings users from more than thirty countries to their platform. The company has chosen their strategic markets based on some specific criteria (explained in chapter 5). Their plan was to enter first in Russian Federation and some Asian countries

apart from Nordic countries. Their strategy is working, and the number of users is growing along with the varieties of contents. The start-up sees internationalization can bring financing opportunity to the company because as mentioned earlier Abu Dhabi based investment company twofour54 gave a condition that the start-up must have users from their region. Premature Internalisation also creates brand awareness among the users. This kind of early move is common among hi-tech and knowledge intensive firms (Cavusgil and Knight, 2015: Cannone and Ughetto, 2014). Many start-ups make an early move into the international competition due to the uniqueness of the company’s capacity and the outlook.

As per this internationalization theory, some companies have the gathered knowledge, skills

As per this internationalization theory, some companies have the gathered knowledge, skills

In document The prospect and challenges of start-up funding in Finland : A case study on a social media based start-up (sivua 60-0)